A growing number of businesses now trust and use cloud financial software as part of their daily operations. They assume Software as a Service (SaaS) is safe and easy to use, effective disaster recovery is in place, and there are no compliance issues.
But none of this is necessarily true, said James Staten, a vice president and principal analyst at Forrester Research Inc., which is based in Cambridge, Mass. For businesses thinking of shifting mission-critical applications to the cloud, experts advise the old adage: Buyer beware.
Here are five reasons buyers should pause before purchasing cloud financial applications.
The biggest problem is compliance, said Staten, who focuses on IT infrastructure and operations at Forrester. If a company only does business in the U.S. and is not publicly held, regulatory compliance is a relatively small factor to worry about, he said.
But that's a big if. A company with transactions in Europe could easily run afoul of European law because a cloud app like Quickbooks, for example, doesn't adhere to European regulations. Some cloud providers offer a European storage facility, but the onus is on the business to know exactly what they are storing and where it's being stored. That's no small task. Moreover, said Jay Heiser of the Stamford, Conn.-based research company Gartner Inc., even if you do all you can to assure compliance, "there is a huge potential for ambitious state attorneys to aggressively investigate how data is being handled."
Finance professionals looking to transition to cloud financial applications should first take this advice: Know what an exit looks like. "If you don't know what your data will look like when you get rid of your current provider, you may find yourself locked in," Staten, of Forrester, said. It would be nice to think that once a cloud vendor is hired, the job is done. This isn't always the case. There will come a day when the migration of mission-critical data is a necessity. What's more, “the more structured the data is, the harder it is to migrate it out and use it elsewhere productively," Heiser said.
"The biggest concern I have is with data loss," Heiser said. If the worst happens, "can you verify with your provider that your data will be recovered? And how long will it take? [The cloud] is a living, breathing entity. It's amazing that it works as well as it does."
To be sure, there isn't widespread looting of data in the cloud, but it's very difficult to disprove that it's not happening either. "Security transparency of cloud providers is terrible. I'm sure they actually do a fine job at security, but they don't do a good job proving that to us," Heiser said. Again, the onus is on the enterprise to ensure data security in cloud computing. The savings businesses thought they achieved by using a SaaS model are now just shifted. "We go from managing our software to managing our providers. And there is no systematic way yet to go about this," Heiser said. "It takes 'buyer beware' to another whole level."
Part of the allure of the cloud is the ability to outsource to SaaS providers some of the work usually assigned to the IT team. This can free up IT to help innovate with the business side and build solutions that can help differentiate an enterprise, proponents of the cloud say.
But with outsourcing comes a loss of control. "I've spoken to companies that don't want to be dictated to by their SaaS provider about when to upgrade, for example," said Paul Hamerman of Forrester. Moreover, specific adaptations or customizations in inventory management, production or billing can make a business unique. Billing systems, for example, require a wide range of adaptation to work optimally, Hamerman said.
The technical and economic health of the cloud computing service provider is a huge concern for anyone dependent on the cloud, said Heiser of Gartner. With on-premises software management, businesses are insulated from the business health of the software vendor, but if your data is locked up in somebody's cloud, Heiser said, decision makers need to evaluate fitness for purpose on an ongoing basis.
"SaaS turns applications into a supply chain," Heiser said. And that's a different relationship than what businesses are used to. "The IT community is going to have to learn tough lessons. You must ensure that these vendors are viable and know that even [the vendors] are managing their supply chain well." Again, another whole level of buyer beware.
Even as more companies are turning to cloud financial applications, experts say to proceed with caution. But how do decision makers evaluate the likelihood that bad stuff is going to happen? They need to have realistic expectations when purchasing from a cloud provider and continually reassess the provider's viability, which is a new kind of relationship for many. The upshot is that shifting to the cloud does not equate to "not my problem anymore."
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